I have to agree with Gimbalimit. I have been reading the "analysts" for a while now, and some clearly are full of --it. Lets face it, they are purely guessing, hoping that a correct guess will garner them some notoriety. They don't seem too worried about an incorrect guess beacuse there is no immediate penalty for being wrong in their business.
UAL may have to liquidate
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winedndined
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United must prepay landing fees in Denver
Carrier announces another 599 layoffs
From Tribune news services
Published December 20, 2002
Denver International Airport is requiring United Airlines to pay landing fees in advance as officials consider what to do if the company, which has filed for bankruptcy, is forced to liquidate.
Also Thursday, United said it will furlough an additional 599 maintenance workers in January to adjust to a 6 percent flight schedule reduction early next year. Most of the furloughs will be in Indianapolis, San Francisco and Oakland.
Denver's airport has billed United $3.9 million for January's projected landing fees, aviation manager Bruce Baumgartner told a City Council committee.
Baumgartner said the airport has a clause in its contract with United that requires any airline in bankruptcy proceedings to pay in advance.
United owed the airport about $13 million for landing fees, building rents and passenger-facility charges accrued before the airline's Chapter 11 filing on Dec. 9.
A federal bankruptcy judge in Chicago has ordered the airline to pay the airport about $4 million in collected passenger-facility charges and roughly $4 million in accrued landing fees, said airport finance director Stan Koniz.
United accounts for 55 percent of the airport's passengers.
In case the company needs to sell its assets, airport officials must look at every option, including restructuring the facility's $4 billion debt, Baumgartner said.
If a liquidation of United suddenly eliminated half of the airport's flights, officials might try to refinance the debt while luring more airlines to Denver.
It also could force the airport to close the C concourse and consolidate all airlines on the two remaining concourses.
As the airport prepares for the worst, United wants to double the size of its regional jet operation in Denver to about 60 planes over the next two years. Then instead of cutbacks, a new commuter airline termimal might be necessary.
United said the furloughs of the maintenance workers will take effect Jan. 26.
The latest round of layoffs comes after the carrier said in October that it was cutting 419 workers represented by the International Association of Machinists and Aerospace Workers. The union represents 37,500 United machinists.
This month United said it would lay off 220 pilots on Jan. 6 and 132 on Feb. 7 because of the reduced flight schedule. In November, the carrier said it planned to lay off 2,700 of its flight attendants on Jan. 31.
The furloughs announced Thursday include 275 employees from United's Indianapolis maintenance center, 160 workers from its San Francisco and Oakland maintenance centers and other line maintenance workers around the system.
"This is a case where we don't have enough work to afford the number of employees we have," Ron Utecht, senior vice president of maintenance, said in a recorded message to employees.
The carrier said it will close another of its three heavy maintenance lines for Boeing 757s at the Indianapolis center in January. United closed its first 757 heavy maintenance line in November because the number of 757s requiring such service had peaked, it said.
Copyright © 2002, Chicago Tribune
-----------------------------------------------
yeah....what was that writer thinking?
Carrier announces another 599 layoffs
From Tribune news services
Published December 20, 2002
Denver International Airport is requiring United Airlines to pay landing fees in advance as officials consider what to do if the company, which has filed for bankruptcy, is forced to liquidate.
Also Thursday, United said it will furlough an additional 599 maintenance workers in January to adjust to a 6 percent flight schedule reduction early next year. Most of the furloughs will be in Indianapolis, San Francisco and Oakland.
Denver's airport has billed United $3.9 million for January's projected landing fees, aviation manager Bruce Baumgartner told a City Council committee.
Baumgartner said the airport has a clause in its contract with United that requires any airline in bankruptcy proceedings to pay in advance.
United owed the airport about $13 million for landing fees, building rents and passenger-facility charges accrued before the airline's Chapter 11 filing on Dec. 9.
A federal bankruptcy judge in Chicago has ordered the airline to pay the airport about $4 million in collected passenger-facility charges and roughly $4 million in accrued landing fees, said airport finance director Stan Koniz.
United accounts for 55 percent of the airport's passengers.
In case the company needs to sell its assets, airport officials must look at every option, including restructuring the facility's $4 billion debt, Baumgartner said.
If a liquidation of United suddenly eliminated half of the airport's flights, officials might try to refinance the debt while luring more airlines to Denver.
It also could force the airport to close the C concourse and consolidate all airlines on the two remaining concourses.
As the airport prepares for the worst, United wants to double the size of its regional jet operation in Denver to about 60 planes over the next two years. Then instead of cutbacks, a new commuter airline termimal might be necessary.
United said the furloughs of the maintenance workers will take effect Jan. 26.
The latest round of layoffs comes after the carrier said in October that it was cutting 419 workers represented by the International Association of Machinists and Aerospace Workers. The union represents 37,500 United machinists.
This month United said it would lay off 220 pilots on Jan. 6 and 132 on Feb. 7 because of the reduced flight schedule. In November, the carrier said it planned to lay off 2,700 of its flight attendants on Jan. 31.
The furloughs announced Thursday include 275 employees from United's Indianapolis maintenance center, 160 workers from its San Francisco and Oakland maintenance centers and other line maintenance workers around the system.
"This is a case where we don't have enough work to afford the number of employees we have," Ron Utecht, senior vice president of maintenance, said in a recorded message to employees.
The carrier said it will close another of its three heavy maintenance lines for Boeing 757s at the Indianapolis center in January. United closed its first 757 heavy maintenance line in November because the number of 757s requiring such service had peaked, it said.
Copyright © 2002, Chicago Tribune
-----------------------------------------------
yeah....what was that writer thinking?
UnitedChicago
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- Aug 27, 2002
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winedndined:
Obviously we are not talking about every individual who writes about United or is an analyst. It is case-by-case.
Obviously we are not talking about every individual who writes about United or is an analyst. It is case-by-case.
gimbalimit
Member
- Nov 15, 2002
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Winedndined,
And your point is.......? My comment referred to the 'business media' and by that I mean all the dedicated business news organs allied in an unholy axis with the business 'ANALysts'. These guys and gals are looked upon by the balance of the media as the subject matter experts when it comes to deciphering the complex machinations of the business world. When they 'pronounce' with eminent gravitas, the balance of the mainstream media picks it up and regurgitates ad nauseum - it turns into twisted game of telephone and the initial message was wrong to begin with.
Are they always wrong? no. Are there good ones? yes. But the bulk of the pap put out by that group is either uninformed and simplistic or pushes an agenda informed by a longing for the status quo.
To wit: "the problem at UAL is that the employees control the damn place and voted themslves raise after raise" - this is the kind of uninformed/slanted BS spread around like the cow manure it really is - and everyone believes it!! To reiterate, I take any news story, and especially one about the business world, with a shaker full of salt. Alright?
Cheers, Gimbalimit
And your point is.......? My comment referred to the 'business media' and by that I mean all the dedicated business news organs allied in an unholy axis with the business 'ANALysts'. These guys and gals are looked upon by the balance of the media as the subject matter experts when it comes to deciphering the complex machinations of the business world. When they 'pronounce' with eminent gravitas, the balance of the mainstream media picks it up and regurgitates ad nauseum - it turns into twisted game of telephone and the initial message was wrong to begin with.
Are they always wrong? no. Are there good ones? yes. But the bulk of the pap put out by that group is either uninformed and simplistic or pushes an agenda informed by a longing for the status quo.
To wit: "the problem at UAL is that the employees control the damn place and voted themslves raise after raise" - this is the kind of uninformed/slanted BS spread around like the cow manure it really is - and everyone believes it!! To reiterate, I take any news story, and especially one about the business world, with a shaker full of salt. Alright?
Cheers, Gimbalimit
Oliver Stone''s Apprentice
Veteran
- Aug 19, 2002
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[blockquote]
----------------
On 12/19/2002 10:52:04 PM UnitedChicago wrote:
Who can afford to purchase United's assets? Certainly no major airline could justify spending at least half a billion on assets like LHR or close to a billion for the Pacific.
----------------
[/blockquote]
Is the market value of those assets even worth that much anymore? Assuming that cash wasn't a problem, access to NRT is nowhere near as difficult as it was 15 years ago when Pan Am sold the Pacific. Likewise for access into Europe.
I can see a few individual authorities, perhaps, but nothing like the lopping off that Pan Am did.
----------------
On 12/19/2002 10:52:04 PM UnitedChicago wrote:
Who can afford to purchase United's assets? Certainly no major airline could justify spending at least half a billion on assets like LHR or close to a billion for the Pacific.
----------------
[/blockquote]
Is the market value of those assets even worth that much anymore? Assuming that cash wasn't a problem, access to NRT is nowhere near as difficult as it was 15 years ago when Pan Am sold the Pacific. Likewise for access into Europe.
I can see a few individual authorities, perhaps, but nothing like the lopping off that Pan Am did.
When reading any analyst's report, it's important to read more than just the lead of the story. If the analyst is only putting out generalities and vague statistics, it may be prudent to take the opinions with a bit of skepticism. [BR][BR]However, if the analyst is reporting facts accurately and drawing logical conclusions to those facts, that's another story.[BR][BR]Unfortunately, I tend to think that the analyst who wrote the article in the first posting of this thread is more on target than many here want to admit. Without the ATSB loan, it seems that United's access to capital is just about dried up, and without a viable plan to become very cash positive in a very short time, the ATSB loan is never going to happen. That leaves Chapter 7 as the most likely outcome.[BR][BR]Capacity reductions mean an accelerated recovery for the industry, and UAL liquidating would eliminate a LOT of excess capacity, perhaps more than is needed--meaning the other airlines would likely grow a bit to fill the void. Given this fact, it's reasonable to assume that the other airlines are lobbying against UAL getting the ATSB loan. Even if there is no lobbying going on, I still believe there's virtually no chance of UAL ever seeing any of that loan money.[BR][BR]So, absent a [STRONG]huge [/STRONG]financial infusion from local and state governments (and I think it's very unlikely that these governments would be willing to put up the amount of money needed to make a difference), I wouldn't be betting on UAL's survival. There's simply no more money.[BR][BR]Just my $0.02 on the subject. Good luck to us all.[BR]
Some clarification is in order. First of all, Scott McCartney is neither an analyst nor an industry insider. In fact, his weekly commentary “The Middle Seat†is supposed to convey the opinion of the flying public. In his past commentary, he has spoken of the rapid growth of low cost carriers, the commoditization of air travel, the summer of 2000, revenue management practices of large carriers, and most recently, he spoke out against the ridiculous $100 standby fee that USAirways tried to cram down our throats that was matched by AA and UA and later retracted.
In this latest article, he simply pulled some publicly available data. If you are at all curious, you can even go to your own www.united.com to get all the details of the Chapter 11 filling. It makes for some pretty interesting reading.
The sooner you all wake up to the seriousness of the problem, the better it will be. As Scott pointed out, now that UAL is in Chapter 11, every day of losses must be made up with earnings. At 20MM a day, you will need a string of the best days you enjoyed when the company made record profits just to get back where you were. This is not some analyst’s spin – this is the reality of the situation.
UAL has never liked bad news. You chose to shot the messenger, Mr. Goodwin, when he tried to point out the problem in 2001 when you still had time to do something about it.
In this latest article, he simply pulled some publicly available data. If you are at all curious, you can even go to your own www.united.com to get all the details of the Chapter 11 filling. It makes for some pretty interesting reading.
The sooner you all wake up to the seriousness of the problem, the better it will be. As Scott pointed out, now that UAL is in Chapter 11, every day of losses must be made up with earnings. At 20MM a day, you will need a string of the best days you enjoyed when the company made record profits just to get back where you were. This is not some analyst’s spin – this is the reality of the situation.
UAL has never liked bad news. You chose to shot the messenger, Mr. Goodwin, when he tried to point out the problem in 2001 when you still had time to do something about it.
gimbalimit
Member
- Nov 15, 2002
- 20
- 0
[blockquote]
----------------
On 12/23/2002 3:35:55 PM Segue wrote:
Some clarification is in order. First of all, Scott McCartney is neither an analyst nor an industry insider. In fact, his weekly commentary “The Middle Seat” is supposed to convey the opinion of the flying public. In his past commentary, he has spoken of the rapid growth of low cost carriers, the commoditization of air travel, the summer of 2000, revenue management practices of large carriers, and most recently, he spoke out against the ridiculous $100 standby fee that USAirways tried to cram down our throats that was matched by AA and UA and later retracted.
In this latest article, he simply pulled some publicly available data. If you are at all curious, you can even go to your own www.united.com to get all the details of the Chapter 11 filling. It makes for some pretty interesting reading.
The sooner you all wake up to the seriousness of the problem, the better it will be. As Scott pointed out, now that UAL is in Chapter 11, every day of losses must be made up with earnings. At 20MM a day, you will need a string of the best days you enjoyed when the company made record profits just to get back where you were. This is not some analyst’s spin – this is the reality of the situation.
UAL has never liked bad news. You chose to shot the messenger, Mr. Goodwin, when he tried to point out the problem in 2001 when you still had time to do something about it.
----------------
[/blockquote]
A little clarification is in order. While Mr. McCartney used largely correct informtion and made some astute predictions, some of his data is WRONG and so, I would argue, are some of his predicitons insofar as thier tenor (BTW, you're right, he's neither an analyst or an insider - but he's given a large soapbox from which to spout, and he does so with great authority - nowhere do I see him saying he may be wrong or he's just an uneducated bumpkin preaching from a middle seat in coach). Most of his premised timeline and subsequent predictions regarding access to capital stem from a 20 million/day cash burn figure........Hmmmmm, does this number seem a little fishy to anyone? Well, it does to me. Accpording to 'inside' sources, this number is a skewed figure driven by the ch11 filing (cash basis status plus past due bills) and was correct only on a given day (worst case) right after the filing - IOW, even over the summer, UAL had days when the losses were excessive - and other days where they actually made money, the cash burn was a 30 day moving average. When assessed on a moving average the current burn is NOT 20 million but a number somewhat less (not that a lesser amount is something to be proud of). So, one can take a statistic and manipulate to produce the desired PR effect. Mr. McCartney never questioned the figure and his timeline predictions end up inaccurate.
As to Segue's observation on the ouster of Mr Goodwin (or badloss) - this is another example of uninformed opinion masquerading as truth on the basis of regurgitated sloppy reporting and even sloppier intellect. Goodwin was sent packing because he was an utter failure as CEO!! Get it? This guy singlehandedly lost more money for the corporation through miscalculation (failed bid for USAir at 60/share???), deceit (OTW known as LYING, to shareholders and employees), incompetence (USAir at 60/share???????, Avolar, 'persih', etc.) and a complete misunderstanding of power and the value of real LEADERSHIP (none - no show at the funerals of 9/11 employees, e.g.). His persish comment did nothing but put fear into our customer base and a dent in the revenue stream - any airline at that time could have made a similar comment with good reason, but didn't - Goodwin just made a huge miscalculation. These are some of the reasons why the BOD (not the employees - who control a whopping 3 of 12 board seats BTW) fired his ass. Not that UAL isn't in deep trouble, but I expect accurate information without the spin. Thank you
All the above IMHO, gimbalimit
----------------
On 12/23/2002 3:35:55 PM Segue wrote:
Some clarification is in order. First of all, Scott McCartney is neither an analyst nor an industry insider. In fact, his weekly commentary “The Middle Seat” is supposed to convey the opinion of the flying public. In his past commentary, he has spoken of the rapid growth of low cost carriers, the commoditization of air travel, the summer of 2000, revenue management practices of large carriers, and most recently, he spoke out against the ridiculous $100 standby fee that USAirways tried to cram down our throats that was matched by AA and UA and later retracted.
In this latest article, he simply pulled some publicly available data. If you are at all curious, you can even go to your own www.united.com to get all the details of the Chapter 11 filling. It makes for some pretty interesting reading.
The sooner you all wake up to the seriousness of the problem, the better it will be. As Scott pointed out, now that UAL is in Chapter 11, every day of losses must be made up with earnings. At 20MM a day, you will need a string of the best days you enjoyed when the company made record profits just to get back where you were. This is not some analyst’s spin – this is the reality of the situation.
UAL has never liked bad news. You chose to shot the messenger, Mr. Goodwin, when he tried to point out the problem in 2001 when you still had time to do something about it.
----------------
[/blockquote]
A little clarification is in order. While Mr. McCartney used largely correct informtion and made some astute predictions, some of his data is WRONG and so, I would argue, are some of his predicitons insofar as thier tenor (BTW, you're right, he's neither an analyst or an insider - but he's given a large soapbox from which to spout, and he does so with great authority - nowhere do I see him saying he may be wrong or he's just an uneducated bumpkin preaching from a middle seat in coach). Most of his premised timeline and subsequent predictions regarding access to capital stem from a 20 million/day cash burn figure........Hmmmmm, does this number seem a little fishy to anyone? Well, it does to me. Accpording to 'inside' sources, this number is a skewed figure driven by the ch11 filing (cash basis status plus past due bills) and was correct only on a given day (worst case) right after the filing - IOW, even over the summer, UAL had days when the losses were excessive - and other days where they actually made money, the cash burn was a 30 day moving average. When assessed on a moving average the current burn is NOT 20 million but a number somewhat less (not that a lesser amount is something to be proud of). So, one can take a statistic and manipulate to produce the desired PR effect. Mr. McCartney never questioned the figure and his timeline predictions end up inaccurate.
As to Segue's observation on the ouster of Mr Goodwin (or badloss) - this is another example of uninformed opinion masquerading as truth on the basis of regurgitated sloppy reporting and even sloppier intellect. Goodwin was sent packing because he was an utter failure as CEO!! Get it? This guy singlehandedly lost more money for the corporation through miscalculation (failed bid for USAir at 60/share???), deceit (OTW known as LYING, to shareholders and employees), incompetence (USAir at 60/share???????, Avolar, 'persih', etc.) and a complete misunderstanding of power and the value of real LEADERSHIP (none - no show at the funerals of 9/11 employees, e.g.). His persish comment did nothing but put fear into our customer base and a dent in the revenue stream - any airline at that time could have made a similar comment with good reason, but didn't - Goodwin just made a huge miscalculation. These are some of the reasons why the BOD (not the employees - who control a whopping 3 of 12 board seats BTW) fired his ass. Not that UAL isn't in deep trouble, but I expect accurate information without the spin. Thank you
All the above IMHO, gimbalimit
UnitedChicago
Veteran
- Aug 27, 2002
- 756
- 0
gimbalimit:
i reiterate...you're my new best friend!
very insightful post. i agree about goodwin...the "perish" letter was just the icing on the cake. any reasonable board would have fired him regardless. he should have been fired when ua walked away from the merger.
i reiterate...you're my new best friend!
very insightful post. i agree about goodwin...the "perish" letter was just the icing on the cake. any reasonable board would have fired him regardless. he should have been fired when ua walked away from the merger.
Gimbal:
While you and others can debate and parse the words and "facts" put forward in the media, it doesn't change one important point. UAL has its back to the wall, and it is in a desperate fight for its life. Time is now UAL's biggest enemy.
This is evidenced by the fact that management will begin 1113 proceedings with the BK judge to abrogate union contracts the day after Christmas, while simultaneously sitting down with same unions to obtain "negotiated" cuts.
External events in the coming weeks and months could decide the fate of UAL despite herculean efforts by both sides to right this ship. That perhaps is the biggest problem for this airline right now...so much of its future success or failure is now controlled by those outside of UAL's house.
May fate now smile on all of you at UAL who certainly don't deserve this tribulation and attendant despair.
While you and others can debate and parse the words and "facts" put forward in the media, it doesn't change one important point. UAL has its back to the wall, and it is in a desperate fight for its life. Time is now UAL's biggest enemy.
This is evidenced by the fact that management will begin 1113 proceedings with the BK judge to abrogate union contracts the day after Christmas, while simultaneously sitting down with same unions to obtain "negotiated" cuts.
External events in the coming weeks and months could decide the fate of UAL despite herculean efforts by both sides to right this ship. That perhaps is the biggest problem for this airline right now...so much of its future success or failure is now controlled by those outside of UAL's house.
May fate now smile on all of you at UAL who certainly don't deserve this tribulation and attendant despair.
UnitedChicago
Veteran
- Aug 27, 2002
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P.S. Here's his email address: [email protected]
I urge employees and customers to register your opinion.
Again, he's correct in that there is the real chance for it to occur. But to write about it two weeks in a row? And on Christmas eve? I just think it's in poor taste to the employees.
In any event...Happy Holidays everyone!
I urge employees and customers to register your opinion.
Again, he's correct in that there is the real chance for it to occur. But to write about it two weeks in a row? And on Christmas eve? I just think it's in poor taste to the employees.
In any event...Happy Holidays everyone!
[blockquote]
----------------
On 12/19/2002 10:52:04 PM UnitedChicago wrote:
With all of this talk about liquidation - which i agree is highly, highly possible - I have a question.
Who can afford to purchase United's assets? Certainly no major airline could justify spending at least half a billion on assets like LHR or close to a billion for the Pacific.
Wouldn't it be in the best interest of the DIP's and other creditors to work with United and allow them to emerge from CH11??
----------------
[/blockquote]
I would think so, because whatever assetts United has would probably be worth much, much less on the market than what they were appraised at in the past. With the aircraft, even if they agreed to short term deals that gave them pennies on the dollar its better than paying to store them in the desert.
----------------
On 12/19/2002 10:52:04 PM UnitedChicago wrote:
With all of this talk about liquidation - which i agree is highly, highly possible - I have a question.
Who can afford to purchase United's assets? Certainly no major airline could justify spending at least half a billion on assets like LHR or close to a billion for the Pacific.
Wouldn't it be in the best interest of the DIP's and other creditors to work with United and allow them to emerge from CH11??
----------------
[/blockquote]
I would think so, because whatever assetts United has would probably be worth much, much less on the market than what they were appraised at in the past. With the aircraft, even if they agreed to short term deals that gave them pennies on the dollar its better than paying to store them in the desert.
[BR][BR]
[BLOCKQUOTE][BR]----------------[BR]On 12/24/2002 1:43:18 PM UnitedChicago wrote: [BR][BR]Scott McCartney is at it again. He writes today about who would scoop up assets in a liquidation.[BR][BR]I sent him an email complaining about columns regarding liquidation two weeks in a row.[BR][BR][ Deleted by moderator] . It's Christmas eve!----------------[/BLOCKQUOTE][BR][BR]I understand the frustration this whole situation is causing, but taking these frustrations out on a news reporter isn't really a constructive way to deal with it.[BR][BR]Unless this reporter is posting false information or opinions expressed as facts, he's just doing his job.[BR]
[BLOCKQUOTE][BR]----------------[BR]On 12/24/2002 1:43:18 PM UnitedChicago wrote: [BR][BR]Scott McCartney is at it again. He writes today about who would scoop up assets in a liquidation.[BR][BR]I sent him an email complaining about columns regarding liquidation two weeks in a row.[BR][BR][ Deleted by moderator] . It's Christmas eve!----------------[/BLOCKQUOTE][BR][BR]I understand the frustration this whole situation is causing, but taking these frustrations out on a news reporter isn't really a constructive way to deal with it.[BR][BR]Unless this reporter is posting false information or opinions expressed as facts, he's just doing his job.[BR]
Scott "gets it"!!!! Bottom line is liquidation would cause short term disruption, but in the end the public will get over it......just like PanAm and Eastern.
The route assets have no intrisnic value since they are rights - the going price would be what ever the highest bidder could pay. You can bet AA, DL, CO will find the money no matter what.
*******
What Happens to Industry
If United Goes Under?
Let's play, "What If?"
What if UAL Corp.'s United Airlines had to liquidate? What would happen to air travel in the U.S. if the world's second-largest airline shut down? What would happen to employees, to airplanes? And, the question I most often get in my e-mail, what would happen to frequent-flier miles?
Pondering such questions is a game of pure speculation, obviously. As reported last week1, there's a real chance that United could run out of money next spring and might have to liquidate. The financial hurdles and loan covenants are real, but predicting the future is tricky. Odds are, United will be able to restructure -- it all depends on how much it can get its costs down, how quickly it can do that, and whether there's a war in Iraq. This much is certain: Survival won't come easy. UBS Warburg late last week handicapped the chances of liquidation at 20%; some airline experts I've talked to have gone as high as 50%, though most think odds of restructuring are still higher than liquidation.
With the outcome uncertain, competing airlines have been hard at work on the "What If?" game. Airlines love to run scenario after scenario, and come up with contingency plan after contingency plan, most of which never seem to work. For them, an industry-reshaping event like the shutdown of a major airline offers a once-in-a-career chance to go to battle and make or break a company. They had better be prepared.
Some corporate travel managers and others have predicted chaos should United shut down, with travel as we know it becoming far less plentiful and the U.S. economy suffering mightily, perhaps even dropping back into recession.
Looking at the big picture, liquidation of United would indeed be tragic for employees and temporarily inconvenient for travelers. In the long run, it would be beneficial for high-cost network carriers and great for low-cost, faster growing airlines. Sorting it all out would be traumatic, but not fatal to either the economy or air travel.
On the whole, there's too much capacity in the air right now -- that's why airlines have been selling tickets so cheaply in order to fill empty seats. Putting more of that capacity in the desert would allow airlines to ratchet up prices -- not something travelers would like, but something that needs to happen to maintain a functioning airline industry.
In the long run, airlines have to get costs down and efficiency up to compete in an economy of low fares. When inefficient, expensive airlines have prices too high, they just create opportunity for low-cost carriers to expand into their markets and win passengers by offering better value. But in the short run, grounding more empty seats will help airline finances. And rival carriers are all ready to pounce on pieces of United.
United's most valuable assets are its rights to fly to Tokyo and beyond in Asia. The Asia routes are a fantastic franchise, which United bought from Pan Am in its dying days. American never got a chance to bid then, and it has cursed that ever since. Delta might make a play for the Asia routes, but AMR Corp.'s American Airlines would kill to get them.
United's routes to London's Heathrow Airport are probably the second most highly sought asset. American already has rights to Heathrow, so here Delta Air Lines would slug it out with Northwest Airlines and Continental Airlines. Mostly, the fight will be with Continental since Northwest isn't all that strong to Europe. With deeper pockets, Delta undoubtedly wins.
Would Continental be shut out? Maybe not. Without United, the biggest of the international alliances -- the Star Alliance -- is going to go looking for a new U.S. partner. American, which has been stymied in its quest for an alliance with British Airways, would be sorely tempted to dump BA and run to the Star Alliance. British Air would go looking for a U.S. partner -- and find Continental. British Air would surely want its U.S. partner to serve Heathrow, its main airport, so the airline would likely drop its opposition to giving a third U.S. carrier and a third British carrier the right to fly between the U.S. and Heathrow. No matter what happens, it's likely that both Delta and Continental would get access to Heathrow.
What about United's hubs? American, the big winner in this hypothetical scenario, gets bigger in Chicago. Sure, other carriers will beef up service to Chicago, but American will likely have the only hub in Chicago. Would Delta add a hub operation at O'Hare if it could get at United's motherlode of takeoff and landing slots? Not likely -- Delta is getting kicked pretty hard in Dallas, where it runs a weak hub dominated by American.
The good news for Chicago travelers is that there is substantial low-fare competition at Midway Airport now to provide some policing of the pricing. In fact, low-cost competitors in the Chicago market actually are bigger, combined, than United right now, according to United. Air service will be far different in Chicago, one of the few cities left in the world with true hub competition. But travelers in Atlanta and San Francisco and Miami already know what it's like.
What about Los Angeles? Most likely, American and Delta will slug it out for primacy at Los Angeles International. It would be an interesting battle to watch.
San Francisco? Northwest would most likely pounce on that. Northwest would love to broaden its geographic reach beyond its concentration in the upper Midwest, and San Francisco offers an attractive market for Northwest's Asia service.
Denver? Continental would be all over Denver. The carrier used to have a hub there but got run out of town by United nearly 10 years ago. Even so, Continental still has about 1,000 employees living in Colorado -- airline employees can commute to work by plane, not car. Continental is kind of bunched up in the East, with hubs at Newark, N.J., Cleveland and Houston. It needs something further west.
Washington? This one is tougher to handicap. United beat back US Airways Group in a battle to establish a hub operation at Washington Dulles International Airport. US Air, even if it is successful with its reorganization, might not be in a position for big expansion. But several other carriers are hungry for more presence on the East Coast. Northwest, for example, once tried to establish a hub at Washington's National Airport, and it could well see Dulles as an attractive option. American, too, has been angling for East Coast expansion for years. Delta already is strong on the East Coast, but certainly could have an interest in a Washington hub. It could be a real dogfight.
And what of frequent-flier miles? I suspect that would be a dogfight, too. Surviving airlines would be hungry for the loyalty of jilted United fliers, and would likely go to great lengths to accommodate. When American bought the assets of TWA, for example, it moved TWA fliers into its AAdvantage program, transferring mileage balances. American saw those accounts as assets that it wanted to acquire. There's certainly the risk that United frequent-fliers could be left high and dry -- a Wall Street analyst I know who thinks liquidation is unlikely, but possible, and nevertheless has used up United miles to buy a first-class ticket to Singapore. But the best guess in the "What If?" game is that survivors will offer sanctuary for frequent fliers if United were to shut down.
So airlines grab routes, gates and customers, but what about airplanes, pilots, flight attendants and mechanics? Most already have thousands of employees on furlough, and if United were to shut down, there would be plenty of United workers available to the taking. Airplanes? Already, there are hundreds sitting in the desert, and a United shutdown would make 600 more available. Lessors would have to repaint and reconfigure, but would happily do so if their planes were producing revenue. Indeed, lessors and creditors like Boeing Co., Airbus Industrie and General Electric's GE Capital would likely be the ones financing expansion for the survivors. For the creditors, the choice they face is whether they can do better with a reconstituted United -- if it can get its costs sharply lower -- or do better with revitalized American, Delta, Northwest and Continentals?
In the end, playing out the impact of a United liquidation simply shows that it wouldn't be the end of air travel in this country. You'd still be able to get where you're going.
The route assets have no intrisnic value since they are rights - the going price would be what ever the highest bidder could pay. You can bet AA, DL, CO will find the money no matter what.
*******
What Happens to Industry
If United Goes Under?
Let's play, "What If?"
What if UAL Corp.'s United Airlines had to liquidate? What would happen to air travel in the U.S. if the world's second-largest airline shut down? What would happen to employees, to airplanes? And, the question I most often get in my e-mail, what would happen to frequent-flier miles?
Pondering such questions is a game of pure speculation, obviously. As reported last week1, there's a real chance that United could run out of money next spring and might have to liquidate. The financial hurdles and loan covenants are real, but predicting the future is tricky. Odds are, United will be able to restructure -- it all depends on how much it can get its costs down, how quickly it can do that, and whether there's a war in Iraq. This much is certain: Survival won't come easy. UBS Warburg late last week handicapped the chances of liquidation at 20%; some airline experts I've talked to have gone as high as 50%, though most think odds of restructuring are still higher than liquidation.
With the outcome uncertain, competing airlines have been hard at work on the "What If?" game. Airlines love to run scenario after scenario, and come up with contingency plan after contingency plan, most of which never seem to work. For them, an industry-reshaping event like the shutdown of a major airline offers a once-in-a-career chance to go to battle and make or break a company. They had better be prepared.
Some corporate travel managers and others have predicted chaos should United shut down, with travel as we know it becoming far less plentiful and the U.S. economy suffering mightily, perhaps even dropping back into recession.
Looking at the big picture, liquidation of United would indeed be tragic for employees and temporarily inconvenient for travelers. In the long run, it would be beneficial for high-cost network carriers and great for low-cost, faster growing airlines. Sorting it all out would be traumatic, but not fatal to either the economy or air travel.
On the whole, there's too much capacity in the air right now -- that's why airlines have been selling tickets so cheaply in order to fill empty seats. Putting more of that capacity in the desert would allow airlines to ratchet up prices -- not something travelers would like, but something that needs to happen to maintain a functioning airline industry.
In the long run, airlines have to get costs down and efficiency up to compete in an economy of low fares. When inefficient, expensive airlines have prices too high, they just create opportunity for low-cost carriers to expand into their markets and win passengers by offering better value. But in the short run, grounding more empty seats will help airline finances. And rival carriers are all ready to pounce on pieces of United.
United's most valuable assets are its rights to fly to Tokyo and beyond in Asia. The Asia routes are a fantastic franchise, which United bought from Pan Am in its dying days. American never got a chance to bid then, and it has cursed that ever since. Delta might make a play for the Asia routes, but AMR Corp.'s American Airlines would kill to get them.
United's routes to London's Heathrow Airport are probably the second most highly sought asset. American already has rights to Heathrow, so here Delta Air Lines would slug it out with Northwest Airlines and Continental Airlines. Mostly, the fight will be with Continental since Northwest isn't all that strong to Europe. With deeper pockets, Delta undoubtedly wins.
Would Continental be shut out? Maybe not. Without United, the biggest of the international alliances -- the Star Alliance -- is going to go looking for a new U.S. partner. American, which has been stymied in its quest for an alliance with British Airways, would be sorely tempted to dump BA and run to the Star Alliance. British Air would go looking for a U.S. partner -- and find Continental. British Air would surely want its U.S. partner to serve Heathrow, its main airport, so the airline would likely drop its opposition to giving a third U.S. carrier and a third British carrier the right to fly between the U.S. and Heathrow. No matter what happens, it's likely that both Delta and Continental would get access to Heathrow.
What about United's hubs? American, the big winner in this hypothetical scenario, gets bigger in Chicago. Sure, other carriers will beef up service to Chicago, but American will likely have the only hub in Chicago. Would Delta add a hub operation at O'Hare if it could get at United's motherlode of takeoff and landing slots? Not likely -- Delta is getting kicked pretty hard in Dallas, where it runs a weak hub dominated by American.
The good news for Chicago travelers is that there is substantial low-fare competition at Midway Airport now to provide some policing of the pricing. In fact, low-cost competitors in the Chicago market actually are bigger, combined, than United right now, according to United. Air service will be far different in Chicago, one of the few cities left in the world with true hub competition. But travelers in Atlanta and San Francisco and Miami already know what it's like.
What about Los Angeles? Most likely, American and Delta will slug it out for primacy at Los Angeles International. It would be an interesting battle to watch.
San Francisco? Northwest would most likely pounce on that. Northwest would love to broaden its geographic reach beyond its concentration in the upper Midwest, and San Francisco offers an attractive market for Northwest's Asia service.
Denver? Continental would be all over Denver. The carrier used to have a hub there but got run out of town by United nearly 10 years ago. Even so, Continental still has about 1,000 employees living in Colorado -- airline employees can commute to work by plane, not car. Continental is kind of bunched up in the East, with hubs at Newark, N.J., Cleveland and Houston. It needs something further west.
Washington? This one is tougher to handicap. United beat back US Airways Group in a battle to establish a hub operation at Washington Dulles International Airport. US Air, even if it is successful with its reorganization, might not be in a position for big expansion. But several other carriers are hungry for more presence on the East Coast. Northwest, for example, once tried to establish a hub at Washington's National Airport, and it could well see Dulles as an attractive option. American, too, has been angling for East Coast expansion for years. Delta already is strong on the East Coast, but certainly could have an interest in a Washington hub. It could be a real dogfight.
And what of frequent-flier miles? I suspect that would be a dogfight, too. Surviving airlines would be hungry for the loyalty of jilted United fliers, and would likely go to great lengths to accommodate. When American bought the assets of TWA, for example, it moved TWA fliers into its AAdvantage program, transferring mileage balances. American saw those accounts as assets that it wanted to acquire. There's certainly the risk that United frequent-fliers could be left high and dry -- a Wall Street analyst I know who thinks liquidation is unlikely, but possible, and nevertheless has used up United miles to buy a first-class ticket to Singapore. But the best guess in the "What If?" game is that survivors will offer sanctuary for frequent fliers if United were to shut down.
So airlines grab routes, gates and customers, but what about airplanes, pilots, flight attendants and mechanics? Most already have thousands of employees on furlough, and if United were to shut down, there would be plenty of United workers available to the taking. Airplanes? Already, there are hundreds sitting in the desert, and a United shutdown would make 600 more available. Lessors would have to repaint and reconfigure, but would happily do so if their planes were producing revenue. Indeed, lessors and creditors like Boeing Co., Airbus Industrie and General Electric's GE Capital would likely be the ones financing expansion for the survivors. For the creditors, the choice they face is whether they can do better with a reconstituted United -- if it can get its costs sharply lower -- or do better with revitalized American, Delta, Northwest and Continentals?
In the end, playing out the impact of a United liquidation simply shows that it wouldn't be the end of air travel in this country. You'd still be able to get where you're going.
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